Employers may sometimes be faced with the need to get creative when their preferred methods for compensating workers don’t necessarily mesh neatly with statutory requirements. For example, balancing an interest in compensating sales workers solely on commission may sometimes present challenges when it comes to remaining compliant with the Fair Labor Standards Act and minimum wage requirements. A case recently decided by the Sixth Circuit Court of Appeals is very informative for Tennessee employers and employees in clarifying which policies will, and which won’t, trigger a FLSA violation problem. If you have questions about this area of the law, our Tennessee FLSA lawyers are ready to advise you.
The case involved a major national chain of appliance and electronics stores. The employer had a policy that said that its retail and sales employees received compensation solely on commissions they earned. Of course, that policy didn’t absolve the employer from paying those workers in accordance with minimum wage law. Therefore, the employer crafted a plan for satisfying the minimum wage requirement: each sales employee, regardless of commissions earned, got a minimum of $290 per week. If that worker’s commissions for that week were less than $290, the employee received what was called a “draw” and worked on somewhat like what many people might see as an advance. The draw made up the difference between the worker’s commission and $290, but, as soon as the worker had a week in which he earned more than $290, the amount of the draw was deducted from that future week’s pay.
In other words, as an example, if John Doe earned $150 in commission in the first week of September, he received a paycheck for $290, representing $150 plus a $140 draw. If John then earned $500 in the second week of September, his paycheck was $360, representing the $500 minus the $140 draw he got the week before.